The financial environment is changing significantly in Europe and beyond, putting pressure on the lending market. Current conditions raise demand for instant credit products which forces lenders to go digital. Lenders are faced with a serious challenge to
ensure business continuity. They need to create a mechanism that allows the assessment of borrowers without the need for their physical presence. How can lenders accelerate and improve the existing processes by digitalisation? How can lenders keep a stable
level of new customer acquisition and ensure a good assessment level of borrowers in these uncertain times?
Open banking presents lenders with a unique opportunity to improve their businesses by designing a quick, reliable credit assessment based on instant information about the client, enriched with insights, and as a result providing a credit decision in no
time. We've prepared the top 3 reasons why lenders should use open banking today.
1. Mitigate the risks associated with outdated information
Some credit bureaus and credit reference agencies agreed to freeze the credit scores of potential borrowers. In these circumstances
the lender needs an instant way of getting the information about the client and his current financial state.
People’s financial circumstances could change drastically in a few days, yet traditional credit bureau data usually incorporates financial records only from months, if not years back.
Using open banking, a lender can get instant bank account statements from borrower’s accounts in any financial institution across the EU in seconds. The connection is done automatically and as a result, the lender gets a trustful source of up-to-date information
without any option for the borrower to manipulate the records.
By accessing open banking channels, data aggregator can provide a detailed analysis on the borrowers sources of income, including any self-employed activity or income originated from other countries. Lenders can instantly receive the borrower's transactions
sorted into categories, recognise spending patterns, and identify income, investments or other loans.
Getting a historical track record of borrower’s financial statements allows to better understand the day-by-day spending patterns of the applicant, his current liabilities and determine what is the amount the person can return without negative effect on
personal budget. This enables the lender to provide a more accurate proposal for the borrower with a higher precision score.
2. Create a fully digital lending cycle
With the existing technologies and the new PSD2 regulation in the EU, any lender can now streamline the lending process by instantly getting access to loan applicants' financial data with their consent, analyze it in real-time and provide an instant credit
decision. Instead of taking borrowers through time-consuming procedures - asking them to come to a specific office, provide their bank statements, proof of ID, proof of their salary and employer, lenders can now have an overview of the financial situation
in minutes, from distance. Digitalisation comes with optimisation of many operational processes and as a result leads to faster and fairer offerings.
How does this work?
Let’s see a typical use case where all the lending process is online:
Customer fills in a loan application and gives consent for connection to his bank accounts
Data aggregator connects to bank accounts using open banking channels and retrieves financial data
Retrieved bank data gets cleaned up and enriched by adding merchant information, categorizing transactions and by other value-added services
Lender receives the applicant’s enriched financial data in PDF, CSV format or via API to further analyze the information
Lender takes a credit decision and presents it to the borrower
What about customers’ trust? Will they actually connect their bank account?
Solving the real customer pain when needed and being able to provide instant loan decisions is king here. Current stats show that 71% of customers are happy to connect their bank account if it speeds up the decision-making process. Displaying security screens
to customers before requesting to connect a bank account helps as well. It increases the bank connection ratio by 7%-20% depending on the country and implementation.
3. Stay up-to-date with the borrower's financial health all the time
Using open banking channels, the lender has a unique opportunity to keep track of the borrower's financial life even after the loan has been granted. Lenders can see what is happening with his finances in nearly real time, for the next 90 days or longer,
with the borrower’s consent. This enables to create unique offerings relevant for the borrower and boost his loyalty to a totally new level. Our clients’ end-users are twice more likely to take a loan from the same lender after open banking functionality was
added to their digital process.
Furthermore, lenders who offer their services via apps, can enrich the user-experience by adding new multi-banking and money management tools. This results in increased customer engagement and also allows the lender to be part of their daily life. We observe
this approach gaining interest on the market now, while even credit bureaus acquire white label money management apps.
While digitalisation becomes a new reality, it is also the only way for businesses to survive and then thrive. It's time to digitalise your entire lending cycle and improve the customer experience and relationships using open banking!